Amkor, Dobson, Dean deals price; Movie Gallery jumps on Q1 numbers; funds see $105 million outflow

By Paul Deckelman and Paul A. Harris

New York, May 11 - Dean Foods Co. was heard to have priced a quickly-shopped 10-year note offering on Thursday, solidly upsized to meet investor demand. Dobson Cellular Systems Inc. also chimed in with its own drive-by deal, an add-on to an existing tranche of 2011 bonds. And syndicate sources further said that Amkor Technology Inc. brought an upsized offering of 10-year notes to market. Reynolds American Inc. unveiled plans to light up the market with a king-size three-part billion-dollar-plus mega-deal.

In the secondary market, investors, to borrow a phrase from the noted film critic Roger Ebert, gave Movie Gallery Inc.'s much-anticipated first-quarter results a resounding "two thumbs up," pushing its suddenly-hot bonds up some 10 points on the session. Sector peer Blockbuster Inc. also finished higher.

Also out of the distressed market, Owens Corning - whose bonds zoomed 15 points on Wednesday on the news that the bankrupt Toledo, Ohio-based insulation maker had reached agreement in principle with its asbestos claimants and other creditors on a reorganization plan - continued upward Thursday by another five or six points, traders said. Other asbestos-challenged names such as Armstrong World Industries Inc. and Federal-Mogul Corp. continued to ride on Owens Corning's coattails.

And after trading had pretty much wound down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $104.6 million more left the funds than came into them.

It was the fifth consecutive weekly outflow, including the $88 million decline seen in the previous week, ended May 3. Over that five-week period, outflows have totaled about $507.2 million, according to a Prospect News analysis of the AMG figures.

Outflows have now also been seen in 12 weeks out of the last 14, dating back to early February, during which time some $1.389 billion more has left the funds than has come into them, according to the Prospect News analysis.

Outflows have now also been seen in 15 weeks out of the 19 since the start of the year, against only four inflows, and net outflows during that time have totaled $1.757 billion, up from $1.652 billion the week before, according to the Prospect News analysis.

Those results confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the $3.236 billion net outflow seen in 2004.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Dean Foods massively upsized

Meanwhile Thursday saw a hard-charging session in the primary market with three issuers raising approximately $1.163 billion of proceeds. Three tranches priced. Two were dramatically upsized. Two came on top of the price talk and one came tight to talk.

The session's biggest deal was from Dallas-based Dean Foods which porked up its issue to $500 million from $300 million.

The 7% 10-year senior notes (Ba2/BB-) priced at a 190 basis points spread to Treasuries, on top of talk.

The reoffer price was 99.604, resulting in a 7.055% yield to maturity.

Citigroup ran the books for the debt refinancing deal.

However soon after the new Dean Foods 7% notes due 2016 began trading sources were marking them down. One source had them at 99.25 bid, off from the 99.604 issue price.

Amkor tight to talk

Also upsized was Amkor's $400 million issue of new 10-year senior notes (Caa1/CCC+) which came to market at par to yield 9¼%, at the tight end of the 9¼% to 9 3/8% price talk. The deal was increased from $300 million.

Citigroup also ran the books debt refinancing deal from the Chandler, Ariz., provider of semiconductor packaging and test services.

Dobson ups fixed debt, takes out floater

Elsewhere Dobson Cellular Systems, Inc. priced a $250 million issue of 8 3/8% series B first-priority senior secured fixed-rate notes due Nov. 1, 2011 (B1/B) at 105.0, on top of price talk.

The transaction resulted in a yield to worst of 7.042% and a yield to maturity of 7.245%.

The sale generated $262.5 million of proceeds.

Morgan Stanley, Bear Stearns & Co. and Lehman Brothers were joint bookrunners.

The new notes are identical to but non-fungible with the $250 million of 8 3/8% notes that priced at par on Oct. 26, 2004. That offering was part of an overall $825 million transaction that also included a $325 million tranche of 9 7/8% second-priority notes.

Proceeds raised in the sale of the series B notes will be used to fund tender for the company's $250 million issue of three-month Libor plus 475 basis points first-priority senior secured floating-rate notes due 2011, also priced as part of the $825 million October 2004 transaction.

Reynolds rolls out $1.65 billion

The forward calendar inhaled another $1.65 billion on Thursday.

That's the size of cigarette-maker Reynolds American's three-parter (expected ratings Ba2/BB) that will hit the road on Monday.

The offering will be comprised of seven-year, 10-year and 12-year bullet tranches.

Lehman Brothers, JP Morgan and Citigroup are joint bookrunners for the acquisition financing.

Belvedere starts €300 million

From cigarettes to booze: French spirits-maker Belvedere SA launched its €300 million offering of seven-year senior secured floating-rate notes (B1/B) on Thursday in Paris.

Credit Suisse has the books for the acquisition financing, debt repayment and general corporate purposes deal which is expected to price late next week.

Dean weak in trading

Back on the secondary side, traders said the new Dobson Cellular add-on deal priced too late in the session for any kind of aftermarket activity.

A trader said that the new Dean Foods 7% notes due 2016 "were not exactly well received," straddling their 99.604 issue price, apparently since anyone who really wanted the notes was able to get an allocation from the upsized issue rather than having to wait around and buy it in the aftermarket.

A market source at another desk was less diplomatic; he characterized the new deal as "a pig."

Amkor's new deal was not doing much better. "It was the same story there," the first trader said, with the bonds remaining right around their par issue price.

Overall market lower

Overall, sources from both the buy- and sell-sides marked junk down on Thursday.

A buy-sider said that high yield was a little lower but nothing drastic considering the stock market took a steep plunge during the session.

This source also commented that trailing the Federal Reserve's move on Wednesday hiking the federal funds target rate 25 basis points to 5% - with no decisive telegraphing of an end to the nearly two-year old regime of rate hikes in the Fed's accompanying statement - may be giving bond investors something to think about.

Meanwhile a sell-side official said that "junk got hurt," trading off with the Treasury market and the stock market.

The source marked the broad market off ½ to ¾ point, or perhaps an eighth wider in terms of yield.

One notable exception, the sell-sider commented, was the cable sector. The existing paper of Charter Communications was pretty well bid, the source added.

Movie Gallery gains on earnings

Also among the established issues, Movie Gallery's 11% notes due 2012 were the day's feature presentation, moving as high as 73.5 bid in morning trading after the numbers came out, well up from their Wednesday closing levels around 62. The bonds came off those highs to settle in around 72 bid, still substantially higher on the session. Those bonds, as well as the company's bank debt and shares, had been moving up solidly over the past several sessions in anticipation that the company would post excellent numbers.

In view of the Dothan, Ala.-based Number-Two U.S. video rental company's recent troubles, Wall Street had not been expecting very much - analysts, on average had expected no more than about 15 cents per share of earnings and revenues of about $644 million.

But the company reported net income for the 2006 fiscal first quarter ended April 2 of $40.347 million ($1.27 per share) on revenues of $694.365 million - far better than year-earlier earnings of

$18.393 million (59 cents per basic share, 58 cents per diluted share) in the year-earlier quarter, on revenues of $233.791 million. Most of the gain was attributable to Movie Gallery's acquisition last year of rival film rental chain operator Hollywood Entertainment Corp., which more than doubled the size of the company.

On their conference call with analysts following the release of the numbers, company executives said that Movie Gallery has adequate cash and borrowing power to meet its obligations this year, though it is also looking to make changes in its capital structure in preparation for next year, when more stringent credit facility financial covenants - temporarily relaxed by its lenders for the remainder of this year - go back into effect.

And they also said that they would be open to a possible combination with the industry's top player, Dallas-based Blockbuster - and that such a union might not necessarily run afoul of federal antitrust restrictions, given recent changes in the industry that have empowered other competitors (see related story elsewhere in this issue).

Movie Gallery's Nasdaq-traded shares soared $1.62 (51.27%) to $4.78 - and at one point were as high as $5.35, up more than two dollars from Wednesday's finish - on heavy volume of 39 million shares, nearly 16 times busier than usual.

Blockbuster better too

Blockbuster's 9½% notes due 2010 were seen by a trader having risen a point, to 96 bid, 97 offered, helped by Movie Gallery's strongly positive results, which were seen as good news for the entire traditional brick-and-mortar home video-rental industry, which has seen revenues and margins eroded of late by competing movie-delivery systems like internet-based Netflix Inc. Blockbuster may have also benefited from the industry consolidation discussion on Move Gallery's call.

Another trader who saw the Blockbuster notes end around 96 bid, 97 offered, had seen those bonds trade as high as 98 bid, 99 offered early in the day, before coming off such peak levels.

Smurfit-Stone rises on sale

Elsewhere, the news that Smurfit-Stone Container Corp. has agreed to sell its consumer packaging segment to private equity group Texas Pacific Group for about $1.04 billion in cash pushed the Chicago-based paper and paperboard container manufacturer's bonds, and those of its various affiliates, higher.

The company said it plans to use essentially all of the proceeds from the sale to reduce debt.

A trader said that its 8 3/8% notes due 2012 were up 1 point at 98.25 bid, 99.25 offered on the news.

A market source at another desk saw Smurfit-Stone Container Enterprises Inc.'s 9¾% notes due 2011 up by 1½ points at 103.5. The company's Stone Container Finance 7 3/8% notes due 2014 were also up 11/2, to about the 92 area, while Jefferson Smurfit Corp.'s 8¼% notes due 2012 up more than a point at 97.25 bid. Another source saw the latter bonds at 98 even, up 1¼ points.

Sea Container gains further

Also on the asset-sale front, Sea Containers Ltd.'s bonds were seen better, apparently helped by a report in a Finnish newspaper that the chief executive officer of its Baltic ferry subsidiary has put some investors together and will offer to buy the operation, which the Hamilton, Bermuda-based maritime container company is trying to sell as a non-core asset.

A market source quoted its 10½% notes due 2012 up ¾ point at 95.25, while its 10¾% notes coming due on Oct. 15 were seen a point better at 97.75.

Sea Containers - looking to cut its $1.3 billion debt load - is hoping to get upwards of $600 million for the ferry operation, which is based in Helsinki and sails to other Baltic ports. Societe Generale, which is shopping that Silja ferry operation for the company, told the paper it expected the sale to the line's chief, Antti Pankakoski, and his backers, to be completed by the end of June.

DirecTV slips on bond rumor

A trader said that DirecTV Group Inc.'s bonds were about a point lower, citing "rumors of a DirecTV bond deal that is not the refinancing type" - meaning an expansion of debt by the El Segundo, Calif.-based satellite TV broadcaster. He saw its 6 3/8% notes due 2015 off a point at 95.5 bid, 96.5 offered.

He said that the issues may have also been hurt by less-than-impressive numbers reported by DirecTV's major rival EchoStar DBS Corp., particularly when it came to subscriber numbers.

"It sets a bad precedent," he said. However, EchoStar's own bonds were little changed on the day, its 6 3/8% notes due 2011 steady at 97 bid, 98 offered.

Owens Corning up more

In distressed-land, Owens Corning's 7½% notes due 2018, which on Wednesday had jumped about 15 points on news of the Toledo, Ohio-based bankrupt company's proposed settlement with its creditors, pushed as high as 122.5 bid Thursday before dropping back to end at 120 bid, 122 offered, about a 5 or 6 point pickup.

Fellow asbestos-challenged bankrupt Armstrong's bonds jumped four points on the day to 88 bid, 90 offered, while Federal-Mogul's notes were 1½ points higher at 64.5 bid, 65.5 offered.

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